(Bloomberg) — Consumer spending, China’s economic stimulus and potentially higher dividend payouts are in focus as Australia’s earnings season gathers pace this month.
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Traders will be keeping an eye on the outlooks of Australia’s largest companies amid expectations the Reserve Bank will ease policy this year. Miners’ views on sluggish commodity prices and the effectiveness of China’s efforts to shore up its economy will also be monitored.
The results follow a three-month rally for the country’s S&P/ASX 200 Index that helped send it to an all-time high last week. The gauge is up 0.3% this year, versus a drop of 0.8% in Asia’s equity benchmark amid optimism for rate cuts. With valuations trading around their highest levels in about two years, the flurry of earnings due this month will test stock prices.
“Markets recently have celebrated the growing likelihood of easing conditions ahead, though this may be an overreaction,” said Anna Milne, an analyst at Wilson Asset Management.
Here’s what to watch in this earnings season:
Bank Valuations
Commonwealth Bank of Australia will set the scene for banking shares when it reports half-year results next week.
The nation’s banks have rallied over the past few months on optimism around softer inflation, interest rate cuts and a benign credit cycle, UBS Group AG analyst John Storey wrote in a note. The country’s largest lender is trading near a record high.
While valuations across the bank sector have become lofty, CBA has been supported by expectations it can increase dividend payouts even if earnings weaken, according to Storey.
CBA is the only one of Australia’s so-called big four banks to report earnings this month, though other lenders will issue trading updates.
Key stocks to watch: CBA (YTD +2.5%), National Australia Bank Ltd. (YTD +4.7%), ANZ Group Holdings Ltd. (YTD +5.8%), Westpac Banking Corp. (YTD +6%)
Retreating Commodities
Investors will assess miners’ outlooks amid plunging prices of some commodities like iron ore and lithium.
Commentary on China will be closely watched after iron ore suffered a poor start to the year on the nation’s property woes. Last month, Rio Tinto Group, the world’s top exporter of the steel-making ingredient, said it sees increased stimulus measures from Beijing sparking a gradual economic recovery in 2024.
Meanwhile, Australia’s lithium miners are cutting jobs, trimming exploration budgets and reviewing dividend payments following a slump in prices of the key component in electric-vehicle batteries.
“Lithium is anticipated to continue its journey to find the bottom in 2024,” said Hebe Chen, an analyst at IG Markets in Melbourne. The major driver for mining shares “will be their fundamental health to sustain the long winter.”
Key stocks to watch: BHP Group Ltd. (YTD -7.9%), Fortescue Ltd. (YTD -2.4%), Rio Tinto (YTD -4.5%), Core Lithium Ltd. (YTD -26%), Liontown Resources Ltd. (YTD -42%), Pilbara Minerals Ltd. (YTD -9.6%)
Resilient Retailers
Consumer discretionary firms could boost their earnings forecasts over the reporting season as Australians remain “highly resilient,” according to JPMorgan Chase & Co.
Companies are heading into the results season with sales holding up better than expected and tightly controlled inventory, analyst Bryan Raymond wrote in a note. Even so, the prospect of guidance upgrades is “broadly priced for higher-quality, liquid retailers,” he said.
They also deliver earnings after Australian retail sales tumbled more than expected in December as consumers brought forward spending to take advantage of Black Friday sales.
Key stocks to watch: Harvey Norman Holdings Ltd. (YTD +8.1%), JB Hi-Fi Ltd. (YTD +5.9%), Qantas Airways Ltd. (YTD +6.2%)
Rising Dividends
Among companies on Australia’s benchmark, dividend payouts are expected to gain 6.2% this year, according to data compiled by Bloomberg.
Utilities and industrials are expected to lead payment growth. Real estate and energy related shares are tipped for the biggest declines as commodity prices remain under pressure.
–With assistance from Zhuo Zhang.
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